Iran retaliates as oil jumps above US$90 — the Hormuz crisis enters another dangerous phase

Iran has fired ballistic missiles at US bases in Jordan in retaliation for the American attack on Iranian forces beside the Strait of Hormuz. Oil has responded immediately, with Brent surging back above US$90 a barrel. Another tanker has been attacked, shipping through Hormuz remains severely constrained and Washington is preparing a continuing campaign of financial sanctions. For Australia, the hoped-for path towards cheaper fuel has suddenly become considerably less certain.

The retaliation threatened by Iran has now occurred.

Iran's Islamic Revolutionary Guard Corps says it launched ballistic missiles against the King Hussein and Al Azraq bases used by US forces in Jordan.

The attack followed Sunday's US strike against two Iranian launchers on Larak Island, directly beside the Strait of Hormuz.

The United States said Revolutionary Guard forces had been preparing rockets carrying sea mines for deployment into the Strait.

Jordan says its air defences intercepted eight missiles that entered its airspace.

US reporting indicated nearly all incoming missiles had been intercepted and there had been no significant impact.

That is reassuring.

But strategically, something important has changed.

After weeks in which attention increasingly turned towards diplomacy, mine clearance and the possibility of reopening Hormuz, the United States and Iran are exchanging fire again.

And the oil market has noticed.

Brent is back above US$90

Brent crude jumped almost 3% during Monday trading in Asia, reaching around US$90.60 a barrel.

West Texas Intermediate rose to approximately US$85.50.

Only days ago Brent was trading around the mid-to-high US$80s as markets increasingly anticipated that negotiations involving Iran, Oman and other intermediaries might eventually restore more normal shipping through Hormuz.

That optimism has not disappeared completely.

But the risk calculation has changed.

The sequence is now stark.

The United States cleared mines from the principal international shipping route.

US forces then said they detected Iranian preparations to deploy more mines.

The United States attacked the launchers.

Iran promised retaliation.

Iran has now fired ballistic missiles at US bases.

Oil has moved back above US$90.

This is exactly why the price of petroleum can change so rapidly during a geopolitical crisis.

Markets are not simply pricing how much oil exists today.

They are pricing what might happen tomorrow.

Another tanker has been hit

There is another development that should concern petroleum markets.

A tanker travelling inbound through Hormuz was struck by an unidentified projectile on Saturday, according to the United Kingdom Maritime Trade Operations.

No casualties were reported.

But this was not an isolated event.

It was reportedly the third tanker attacked in the Strait within a week.

That matters enormously.

The commercial problem in Hormuz has never required every tanker to be attacked.

It only requires sufficient danger to make shipowners, charterers, insurers and crews reluctant to enter.

Every attack reinforces that calculation.

And the latest shipping numbers suggest caution is already winning.

Only five visible commodity vessels a day

Kpler data reported by Reuters on Monday show the number of visible commodity vessels travelling through Hormuz over the weekend fell to approximately five a day.

That is extraordinarily low compared with normal pre-war activity.

It also follows the erratic pattern we have been watching.

There have been days when traffic appeared to be recovering.

Then it fell again.

That volatility is itself evidence that Hormuz has not returned to normal commercial operation.

Some vessels are travelling with their tracking transponders switched off, meaning public shipping counts may underestimate actual movements.

But even allowing for so-called dark shipping, the commercial system remains profoundly disrupted.

The crucial Australian question remains the same:

Are enough ships moving enough petroleum safely enough to restore normal Asian fuel markets?

The answer is still no.

Australia should keep watching the ships

For weeks, The Times has argued that tanker movements provide a better measure of the Hormuz recovery than diplomatic statements alone.

The latest events reinforce that conclusion.

Governments can announce negotiations.

Markets can anticipate agreements.

Oil can fall because traders believe conditions will improve.

But physical fuel security ultimately requires physical petroleum movements.

Australia does not run its trucks, tractors, aircraft and cars on diplomatic expectations.

We require petrol, diesel and aviation fuel.

Those products have to be produced and transported.

And Australia sits at the end of long international supply chains.

When those supply chains become dangerous, the cost eventually reaches us.

The Australian position remains stronger than the headlines suggest

There is no reason for Australians to panic about an immediate physical fuel shortage.

The latest Australian Government figures are reassuring.

Energy Minister Chris Bowen reported on 29 August that Australia had approximately:

• 41 days of petrol, five days more than when the Iran crisis began;
• 36 days of diesel, four days more than when the crisis began;
• 31 days of jet fuel, two days more than when the crisis began; and
• 47 fuel ships heading towards Australia, which the government says is consistent with the flow maintained during the conflict.

That is an important achievement after six months of extraordinary disruption.

Australia has managed to maintain its fuel supply.

The country remains at Level 2 — Keep Australia Moving — under the National Fuel Security Plan, reflecting continuing international uncertainty rather than an imminent domestic shortage.

The distinction matters.

Australia's immediate vulnerability is increasingly price, not simply physical availability.

The excise protection is gone

That price vulnerability is more important now because the temporary fuel-excise relief introduced earlier in the crisis has ended.

The Commonwealth initially cut fuel excise substantially to cushion households and businesses from the enormous increase in international petroleum prices.

That relief was subsequently tapered before expiring in August.

Australian motorists are therefore once again substantially exposed to movements in international fuel prices without that temporary tax buffer.

Brent moving from the mid-US$80s back above US$90 does not mean service-station prices will rise by an equivalent amount tomorrow.

Australian retail fuel prices depend upon refined-product benchmarks, exchange rates, freight, taxation, wholesale margins and retail price cycles.

But renewed international pressure is moving in the wrong direction.

Diesel remains the greater strategic concern

Petrol naturally receives the most public attention because millions of motorists see its price displayed beside Australian roads every day.

Diesel deserves at least as much attention.

Australia's economy depends upon it.

Trucks use it.

Farm machinery uses it.

Mining uses it.

Construction uses it.

Remote communities depend upon it.

Diesel generators provide backup and primary electricity in many locations.

The international diesel market is already under pressure from disruptions extending well beyond Iran.

Russian refinery problems and restrictions on Russian diesel exports have removed or constrained another important source of global supply.

Middle Eastern refining and shipping disruption has tightened the market further.

The result is that the world faces simultaneous pressure from different directions.

Hormuz could improve while Russian diesel remains restricted.

Russian supply could improve while Hormuz deteriorates.

Australia needs both crude and refined-product markets to become more normal before we can confidently declare the fuel shock over.

Washington is escalating economically as well

Military confrontation is only one part of the latest escalation.

US Treasury Secretary Scott Bessent says Washington expects to announce new secondary sanctions against Iran on a weekly basis.

The initial emphasis will be on banks and financial institutions handling Iranian money.

Washington has already sanctioned the United Arab Emirates branches of Egypt's Banque Misr over alleged financial links to Iran.

Bessent has indicated institutions could ultimately be cut off entirely from the US dollar-based financial system.

This matters to energy markets because sanctions can affect petroleum supply without a missile ever being fired.

Banks finance trade.

Insurers need financial services.

Shipping companies require payments.

Oil traders depend upon international banking networks.

A more aggressive secondary-sanctions regime can make dealing with Iranian petroleum commercially dangerous even for companies outside the United States.

That potentially removes supply from the effective global market.

China matters

The American sanctions strategy also intersects with China.

China has historically been a major buyer of Iranian petroleum.

Washington argues its blockade has already substantially curtailed Chinese purchases of Iranian oil.

If further financial sanctions make those transactions more difficult, Iran loses revenue.

But the global market can also lose accessible supply.

That is one reason sanctions are not merely a bilateral US-Iran issue.

The consequences spread through international petroleum pricing.

Australia participates in that same global market.

Then there is Kharg Island

One development requires considerable caution.

US President Donald Trump posted on social media that Iran's Kharg Island was being “blown to smithereens”.

If Kharg were actually subjected to a major attack, it would be enormously significant.

The island historically handled the overwhelming majority of Iran's seaborne crude exports.

A sustained attack on its petroleum infrastructure could severely damage Iran's ability to export oil and dramatically escalate the energy dimension of the war.

But at the time of writing, there is no independent confirmation that such an attack has occurred.

Neither the White House nor the US Defense Department immediately provided Reuters with details.

There was no immediate confirmation from Iranian media.

More importantly, Reuters examined the dramatic video accompanying Trump's post and found it was probably synthetically generated.

That means responsible reporting requires us to separate two things.

The presidential statement is real.

The claimed destruction is not presently established fact.

Until credible independent evidence emerges, The Times will not report that Kharg Island has been destroyed.

In a conflict already capable of moving global markets, verification matters.

The Strategic Petroleum Reserve enters the story

There is another interesting American development.

President Trump says petroleum obtained under a recent arrangement with Venezuela will be used to replenish the United States Strategic Petroleum Reserve.

The reserve has fallen close to its lowest level in 44 years.

That matters beyond the United States.

Strategic reserves are the emergency buffer governments can release when ordinary petroleum markets fail.

Six months of Middle Eastern disruption have demonstrated the importance of those buffers.

America rebuilding its reserve while simultaneously confronting Iran is an acknowledgement that petroleum security remains a strategic concern.

Australia has reached a similar conclusion.

Australia is strengthening its own defences

The Commonwealth has announced a $14.8 billion Fuel Security and Resilience Package.

The policy includes work on strategic fuel reserves and measures intended to strengthen domestic resilience against international supply shocks.

That debate has become much less theoretical during the Iran war.

Australia relies on liquid fuels for more than half of its final energy demand.

Our enormous geography makes transport fuel particularly important.

Electrification will gradually change parts of that equation.

It will not eliminate Australia's dependence on liquid fuels tomorrow.

Aircraft will continue flying.

Heavy trucks will continue moving freight.

Mining equipment will continue operating.

Agriculture will continue requiring energy.

The question is therefore not whether Australia should participate in global petroleum markets.

We inevitably will.

The question is how resilient we are when those markets fail.

The inflation risk has returned

The latest increase in oil also has consequences beyond service stations.

Fuel is an input into almost everything.

A trucking company paying more for diesel eventually has to absorb the cost or pass it on.

A farmer faces higher operating expenses.

Airlines face higher jet-fuel bills.

Mining companies pay more.

Construction costs increase.

Businesses distributing goods around a continent the size of Australia face higher freight bills.

Eventually some of those costs become consumer prices.

That is why central banks watch oil shocks.

An economy can experience an inflationary petroleum shock even without running out of petroleum.

Australia has spent six months demonstrating exactly that distinction.

Markets are also reacting

The consequences of renewed US-Iran fighting are already spreading beyond oil.

Asian equity markets fell on Monday as investors reassessed geopolitical and inflation risks.

Higher petroleum prices complicate the outlook for interest rates because another sustained energy shock could make inflation more difficult for central banks to contain.

For Australia, the transmission mechanism is familiar.

Oil rises.

Refined fuel rises.

Freight becomes more expensive.

Business costs increase.

Consumer prices face upward pressure.

The Reserve Bank then has another inflationary variable to consider.

The significance of Hormuz therefore extends considerably beyond the petrol station.

Diplomacy is still possible

None of this means the diplomatic process is dead.

Iran and Oman have been discussing arrangements for managing the Strait.

Qatar and other intermediaries remain interested in reducing the conflict.

Both Washington and Tehran have powerful reasons to avoid uncontrolled escalation.

But Sunday's US strike and Monday's Iranian retaliation demonstrate the fragility of that process.

A diplomatic initiative can take weeks to construct.

A missile can change market expectations in minutes.

That is the reality confronting Hormuz.

What happens next matters enormously

There are now several indicators worth watching.

The first is Iranian retaliation.

Was the missile attack on the Jordanian bases Tehran's complete response to Larak, or the beginning of something larger?

The second is the American response.

Does Washington absorb the largely intercepted attack, or retaliate again?

The third is Hormuz shipping.

Do tanker movements fall further after the latest escalation?

The fourth is mining.

Does Iran attempt again to deploy sea mines?

The fifth is oil.

Does Brent remain above US$90, retreat as tensions settle, or begin moving towards US$100 again?

And finally, Australia should watch refined-fuel prices rather than crude alone.

That is ultimately what matters at the bowser.

The Times View

The Hormuz crisis has just demonstrated how quickly apparent progress can disappear.

Only days ago, mines had been cleared.

Iran and Oman were discussing a shipping corridor.

Oil was falling.

Tankers were tentatively returning.

There was genuine reason to believe the global petroleum crisis might be entering a less dangerous phase.

Then US forces attacked Iranian launchers they said were preparing to deploy more sea mines.

Iran retaliated with ballistic missiles against US bases.

Another tanker was struck.

Visible Hormuz traffic fell to around five commodity vessels a day over the weekend.

And Brent moved back above US$90.

Australia remains in a comparatively strong physical position.

Our fuel stocks are higher than when the war began.

Ships continue heading towards Australian ports.

There is no evidence justifying panic buying or claims that Australia is about to run out of fuel.

But there is equally no justification for complacency.

The temporary fuel-excise protection has ended.

Diesel markets remain tight.

The United States is preparing weekly financial sanctions.

Hormuz remains dangerous.

And the world's most important petroleum chokepoint has again become an active military front.

The immediate question is whether the latest exchange ends here.

If Washington and Tehran stop, markets may settle again.

If each retaliation produces another retaliation, the pathway is very different.

For Australia, the test remains the one we have applied throughout this crisis:

Watch the ships. Watch refined fuel. Watch what Australia actually has in storage and on the water.

Those are facts.

And in a conflict increasingly surrounded by claims, counterclaims and even synthetic imagery, facts are the safest foundation for understanding Australia's fuel security.